Analysis of the Influence of the Foreign Direct Investments on the Economic Growth in the Developed and Developing Countries

Abstract

Authors analyze the differences between the influence of the foreign direct investments on the economic growth in the developed and developing countries. For the model of the GDP on the foreign direct investments for the developed countries the following data are used: observations for the 10 countries during 1983-2013. For the model of the GDP on the foreign direct investments for the developing countries the following data are used: observations for the 11 countries during 1994-2013. Investigators conclude that the influence of the foreign direct investments on the economic growth definitely has the positive effect in both cases. However, the degree of this influence depends on the type of the country. The developing countries get the smaller effect from the foreign direct investments because of the non-transparent institutional environment and negative influence of other non-economic factors. These findings provide an opportunity to judge that in developed countries, institutional and economic environment and, most of all, human capital allow you to get the full effect of FDI, that is, as capital accumulation and spill-over effects. In developing countries, there should be thresholds to reduce effects of FDI, such as insufficient human capital and poor economic and institutional environment. Thus, the impact of FDI on economic growth is certainly positive, however the level of this effect depends on country characteristics. That is, the hypothesis that FDI affects developing countries less than developed, due to the existence of thresholds in the form of unhealthy institutional and economic environment were confirmed.

Keywords: influence of the foreign direct investments on the economic growth, developed countries, developing countries

JEL Classification: P45